The Corner

Is There a Shortage of Poor People?

Reihan, I enjoyed your immigration post, and I don’t disagree with any particular, but this jumped out at me:

First, [Matt] Yglesias is right to observe that immigration raises the average income of native-born Americans.

Maybe; I am skeptical of the “studies-show” school of government (all those great studies and the economy keeps behaving unpredictably!) and I have a bit less confidence in the precision and real-world usability of economic models. (When everyone is using the same model, everyone is making the same mistakes.) One has to be careful about the question one is asking: For example, the very interesting Patricia Cortes study referenced by Yglesias and many others in this debate finds that it makes a large difference whether you track income effects in cities or in states, and that at the larger scale the negative income effects associated with immigration are larger. 

Negative income effects? That’s not a typo. Again, it matters what question you ask, and it is the case, as Reihan notes, that studies do suggest that “immigration raises the average income of native-born Americans.” But why should native-born Americans be our controlling metric? We have 40 million foreign-born people in the country, constituting about 14 percent of the population, making them a slightly larger minority group than African Americans. Can we just write off their economic interests?

That matters because, as Cortes and others note, the “higher incomes” Americans enjoy as a result of immigration do not mainly come in the form of what most people think of as higher incomes, i.e. higher money incomes, a larger figure on the fortnightly paycheck. Rather, much of the benefit comes in the form of higher real incomes, i.e. from lower prices for certain goods and services.

Anybody have any theories as to how low-skilled immigrants go about contributing to lower prices for labor-intensive goods and services? If your wild-ass guess was by putting downward pressure on wages, then you are correct. Cortes:

I find that, at current immigration levels, a 10 percent increase in the share of low-skilled immigrants in the labor forces decreases the price of immigrant-intensive services, such as housekeeping and gardening, by 2 percent. Wage equations suggest that lower wages are a likely channel through which these effects take place.

All wages? Not necessarily—mainly wages in industries that are already low-wage and low-skill, with the most significant effects felt by 1. previous immigrants and 2. Hispanics. Cortes argues convincingly that low-skilled natives and low-skilled immigrants aren’t really great substitutes in the labor market, but new low-skilled immigrants are in fact a pretty good substitute for old low-skilled immigrants; and, because one of the things that holds immigrants back is lack of English proficiency, Spanish-speaking immigrants are relatively good substitutes for Hispanics who speak Spanish mainly or exclusively.

At the risk of running afoul of the noted economist Eva Longoria, I do not take the frightful possibility of having to pay a few bucks more for valet parking as the end of the debate.

If you want to raise real incomes for poor people by lowering the prices of labor-intensive goods and services through the mechanism of downward pressure on wages, there are lots of easy ways to do that, i.e. repealing the minimum wage. But nobody seems to think that is a great idea, even though the underlying economic mechanism is similar.

People are economic inputs, but they are not only economic inputs, and there is more to the immigration question than net effect on GDP. If new immigration is, for example, making it harder to assimilate prior immigrants, and more difficult for prior immigrants to advance economically, then that matters, even if the overall effect on GDP is positive. 

(Incidentally, if we’re going to use true purchasing power as our standard, then can we all quit grinding about income stagnation? The real-world purchasing power of a bottom-third American in 2015 is so radically different from that of a bottom-third American in 1975 that we don’t even have a really good way to express it economically. What kind of computer or mobile phone did the median American have in 1980? What was his car like, or his house?)

I don’t think it really makes much sense to declare oneself pro-immigration or anti-immigration. That’s because it matters a great deal what kind of immigration one is talking about, and what kind of immigrants. I’m perfectly happy for the $200,000 a year engineer or physician to come and put downward pressure on the wages of native-born competitors, or for wealthy entrepreneurs and investors to compete with our local 1 percenters for real estate in Manhattan or Malibu. 

On the other hand, I’ve spent a fair amount of time in the past several years in poor and struggling parts of the country—Appalachia, Detroit, interior California, East St. Louis—and I have not once thought to myself: “You know what this place really needs? More poor people!” 

Call me parochial, but my economic model defines a poor society as a society that has lots of poor people in it.

Of course it is the case that not all of the objections to continued high levels of immigration, and illegal immigration in particular, are economic. Some of us suffer from a retrograde preference for culture over multiculturalism and take a very different lesson from the Swedish and Danish experiences than the progressives do. Others value lawfulness for its own sake. Economic growth is very important, but there are much more direct paths to nudging GDP in the right direction than an undisciplined immigration system. 

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